March recovery softens IIP blow

Govt, markets take heart from the performance in the last month of FY13

Industry’s performance in the last financial year was the worst in the past 20 years but the smart recovery in March cushioned the shock somewhat.  

The Index of Industrial Production (IIP) in 2012-13 grew by one per cent, down from 2.9 per cent in the previous year and manufacturing output grew just 1.2 per cent, prompting rating agency CRISIL to say “history seems to be repeating itself. The current situation is reminiscent of the crisis year of 1991-92 (when there was a severe balance of payments problem)”.

What cheered policymakers was the 2.5 per cent growth in March against 0.6 per cent in the previous month.

Economic Affairs Secretary Arvind Mayaram said this was exactly the trend the ministry was hoping for. “If it (the trend) continues, inflation comes down and growth begins to pick up, I am quite confident that the growth in the current financial year would cross the six per cent mark.”

Though some experts attributed the March recovery to the 2.8 per cent decline in the same month in the previous year, the Prime Minister's Economic Advisory Council Chairman, C Rangarajan, differed with this view. “The base effect should be seen from the sequential growth in IIP numbers and not the year-on-year growth,” he said. IIP had risen 7.07 per cent in March 2012 over February 2012.

The markets also welcomes the recovery in March, with the BSE benchmark Sensex  closing above 20,000-mark after a gap of 100 days and the NSE Nifty ended at its highest level in 2013 on robust buying in auto, consumer durables, FMCG and banking stocks. The index initially moved in a narrow range but later bounced to a high of 20,119.14 on rise in IIP data. It finally concluded at over three-and-a-half-month high of 20,082.62, a net rise of 143.58 points or 0.72 per cent.

Shilpa Kumar, senior general manager, head-markets and proprietary trading group, ICICI Bank, said manufacturing and mining segments would show some improvement on accommodative monetary policy and continued policy action, contributing to an expected recovery in FY14 vis-à-vis the FY13 overall number of one per cent. Further, some green shoots were visible from the consumer non-durables point, coming in at 6.5 per cent vis-à-vis the FY13 figure of 2.7 per cent, indicating a recovery in consumption demand,” he added.

The fall in March 2012 (year-on-year), however, kept mining output down in March 2013. Mining output contracted 2.9 per cent over a year, showing the problems in the sector cannot be solved only by the Reserve Bank of India cutting the repo rate, analysts said. A cut in the rate has been a long-standing demand of industry.

Mining clocked a cumulative fall of 2.5 per cent in 2012-13 against 1.9 per cent in 2011-12. For the last two years, mining has contracted, showing a systemic problem in the sector. Output of the sector was down for 11 months in 2012-13.

Electricity, which tripped over three per cent in February, grew 3.5 per cent in March against 2.7 per cent a year ago. For 2012-13, electricity generation rose four per cent, almost half of the 8.2 per cent in 2011-12. The government had said it was fixing the problem of fuel supply that the sector faces. If the government comes up with positive measures, analysts said, there could be some revival in 2013-14.

However, the largest component of industry — manufacturing — recovered to 3.2 per cent in March against 1.93 per cent in the previous month. It contracted 3.6 per cent in March 2012. Manufacturing grew 1.2 per cent in 2012-13 against three per cent in the previous year. Rangarajan said manufacturing was showing improvement. If this continues, it will grow four per cent in 2013-14. The council headed by him had pegged gross domestic product (GDP) growth of 6.4 per cent in the year.

The capital goods sector, a laggard for many months, grew 6.9 per cent despite a high base of 20.1 per cent growth. This segment was volatile but has been growing for the last two months.

However, consumer durables’ production declined 4.5 per cent in March 2013 against 1.2 per cent a year ago. The outlook does not inspire confidence, with car sales falling for a sixth month in a row in April, the longest stretch of decline since the Society of Indian Automobile Manufacturers started collating data in 1997-1998.

However, consumer non-durable goods were up at 6.5 per cent in March, against one per cent in the year-ago period, indicating consumers were not putting off purchases of fast-moving consumer goods.